Friday, 9 August 2013

How much profit is there is wildlife extinction?

 536 rhino have been killed in poaching incidents in South Africa in the first half of 2013. This year-on-year escalation is unbelievable to most people and appears to be unstoppable. Sensible & decent folk would think that as wildlife numbers decline poaching would logically slow down as there is less profit from fewer animals. 

But are unscrupulous criminal speculators hoarding stockpiles with the anticipation that rhino extinction will make their stockpiles priceless? This is the type of economic advice that morally bankrupt stockbrokers & hedge fund managers would provide to criminals to maximise their profits. These are the same people that wrecked the global economy & the lives of millions of people so its not hard to imagine this scenario.

Here is part of the current debate occuring on Wildlife Conservation Society Linked-In page:

Joe Shelnutt Banking On Extinction - (Mason, Bulte, & Horan, 2012) examined speculator behavior with regard to wildlife commodities such as tiger bones, bear bladders, ivory, and rhino horn. There is evidence that when there are competing supplies between private stores and wild populations, and when speculators collude, an extinction strategy may be optimal. Specifically, they conducted a simulation study and applied the model to the critically endangered black rhino and its conservation.

There was evidence that extensive stockpiles of rhino horn exist. Individuals holding on to these stockpiles while black rhino and other rhino species dwindle due to poaching has the potential to yield significant dividends. As wild rhinos become more rare, horn prices rise and poaching pressures on extant populations increase. The authors postulate that extinction may be and incentive-driven process and that it is exacerbated when agents hold significant horn stockpiles (Mason, et al. 2012). Agents actively engage in the strategic behavior of  “banking on extinction.” Banking on extinction was defined as: the behavior of private parties investing in private stores of renewable resources (including endangered species), hoping that the combination of ill-defined (or enforced) property rights and high prices on consumer markets will deplete in situ stocks in the immediate future (Mason, et al., 2012). In this process, rhino horn, a renewable resource, is converted into a non-renewable resource, able to be stockpiled. With extinction, competition from the wild is eradicated.

The researchers developed a model where there were two kinds of economic agents. 1) The Speculator: possesses a preexisting stockpile of the resource (horn). 2) The Poachers: collect horn under open access, gaining instant profits. An important caveat concerning open access in this paper is that speculators could induce poachers to take horn more rapidly by adding speculator demand to market demand. This hastens the demise of the species (black rhino).

The authors proposed that there are two solution routes to the profitability of banking on extinction: 1) The speculator operates as a traditional non-renewable resource monopolist; 2) The speculator actively participates as a buyer to increase stores while encouraging poaching to drive the species below Minimum Viable Population (MVP) size. The profitability of these two routes depends upon the initial level of private and wild stocks.

At the time of publication, rhino horn was worth approximately $60,000/kg. It was thought that such value justify and compensate for the loss in interest, for stockpiling. Crime syndicates killed more than 800 black rhino between 2009 and 2012 (Mason et al. 2012). The black rhino population level has dropped significantly from the 1970’s when levels were more than 65,000 breeding individuals to 2012 levels of 4,000 to 5,000 total individuals.

I am interested in the escalating incidence of wildlife poaching and it relationship to ecosystem decay, organized crime, nation security, and human/wildlife conflict around the world. I believe the article was very well planned and explored aspects of poaching that most individuals have not given thought to. Exploring how traders in illicit wildlife commodities might collude to maximize profits is a level of economic sophistication few know exists. The general assumption that wildlife poaching occurs at the local level to provide the impoverished with sustenance is being replaced with the reality that highly organized criminal syndicates are using every tool available to extract funds, even if, and in many cases with intent to destroy entire species. Joe

Reference:
Mason, C. F., Bulte, E. H., & Horan, R. D. (2012). Banking on extinction: endangered species and speculation. Oxford Review of Economic Policy, 28(1), 180-192.

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